NEW TO FOREX

GUIDE

0|Page
TABLE OF CONTENTS
What is Forex? And Why Trade It? ……………………………. 1
Why Trade Forex? ………………………………………………………………… 3

Putting Your Ideas into Action ……………………………………. 4

The Bulls and the Bears …………………………………………………………. 5

Reading a Quote and Making a Trade ………………………... 6

“But I don’t have any euros. How can I sell them?” ……………… 7

Pips, Profit, Leverage and Loss …………………………………... 8

What is a “Pip”? …………………………………………………………………… 8
Maximizing Your Trading ……………………………………………………… 9

How to Develop a Strategy ………………………………………... 9

What’s Next? ……………………………………………………………………….. 9
Becoming a Knowledgeable Forex Trader …………………………….. 10

0|Page
What is Forex? And Why Trade It?

Forex
[for-eks] –noun

1. Is a commonly used abbreviation for “foreign exchange”. It is typically used to describe trading in the foreign exchange
market, especially by investors and speculators.

You may not know it, but forex is actually one of the largest markets in the world, with over $4 trillion in average daily volume transacted.
This easily dwarfs the shares market. All of the world’s shares markets combined average only about $84 billion per day.

So, if forex is so big, why have so

few people heard of it?
The simple answer is you have probably used the forex market before, either directly or indirectly. Any time you take a trip to another
country and exchange money, you just made a forex trade.

Whenever you buy something in a shop that was made in another country, you just made a forex trade. You paid in your own currency
and the manufacturer was paid in a different currency.

1|Page
People trade currencies all of the time, but how can currency
be an investment? Here’s a simple example. Imagine that you
took a trip from the United States to Europe in 2002. For the
trip, you changed your US dollars into euros. At the end of a
trip, you typically would change any extra euros back into US
dollars. But what if you didn’t?

In 2002, one euro was worth about 90 US cents ($0.90). Say

that you decided to hold on to 500 euros, and left them sitting
in your desk drawer for 5 years. In 2007, you took your euros
to the bank and sold them for a 2007 price of $1.40. Since you
bought the euros for $0.90 and sold them for $1.40, you made
a $0.50 profit per euro. You would have made $250 just
because you held on to those euros and had bought and sold at
the right time. That’s a 55% return in 5 years.

The $4 trillion forex market mostly runs on the same idea. Many of the world’s giant banks, hedge funds, and insurance companies
actively trade currencies as a way to make money. Since they do so in very large amounts, they record profits and losses in the millions
every day for the smallest fraction-of-a-cent movements in exchange rates.

Many have not heard of the forex market because the market has historically been largely exclusive to industry professionals. The
average person could buy a stock but couldn’t trade currencies. So it remained solely in the hands of the big boys.

2|Page
Things have changed.
Like the online stock trading revolution of the 1990s, the You can now make trading and investment decisions to buy and
internet has brought forex trading within reach of the average sell British pounds or Japanese yen at any time, day or night
person sitting at home. Thousands of individual traders around (Sunday through Friday). This brief guide will show you how.
the world can now trade currencies from their living rooms, But first, it’s important to know why you should trade forex.
with nothing but a computer, an internet connection, and a
small trading account.

Why Trade Forex?

Online forex trading has become very popular in the past decade because it offers traders several advantages.

 Forex never sleeps: Trading goes on all around the world during different countries’ business hours. You can, therefore, trade
major currencies any time, 24 hours per day. Since there are no set exchange hours, it means that there is also something
happening at almost any time of the day or night.

 Go long or short: Unlike many other financial markets, where it can be difficult to sell short, there are no limitations on
shorting currencies. If you think a currency will go up, buy it. If you think it will fall, sell it. This means there is no such thing as
a “bear market” in forex – you can make (or lose) money any time.

 Low trading costs: Most forex accounts trade without a commission and there are no expensive exchange fees or data licenses.
The cost of trading is the spread between the buy price and the sell price, which is always displayed on your trading screen.

3|Page
  Unmatched liquidity: Because forex is a $4 trillion a day market, with most trading concentrated in only a few currencies, there
are always a lot of people trading. This makes it typically very easy to get in to and out of trades at any time, even in large sizes.

 Available leverage: Because of the deep liquidity available in the forex market, you can trade forex with considerable leverage
(up to 50:1). This can allow you to take advantage of even the smallest moves in the market. Leverage is a double-edged
sword, of course, as it can significantly increase your losses as well as your gains.

 International exposure: As the world becomes more and more global, investors hunt for opportunities anywhere they can. If
you want to take a broad opinion and invest in another country (or sell it short!), forex is an easy way to gain exposure while
avoiding vagaries such as foreign securities laws and financial statements in other languages.

So, let’s start with what a basic forex trade looks like. 

Putting Your Ideas Into Action

Currencies trade on an open market, just like stocks, bonds,

computers, cars, and many other goods and services. A
A currency’s value will
currency’s value will fluctuate depending on its supply and
demand, just like anything else. If something increases supply fluctuate depending on its
or lowers demand for a currency, that currency will fall. For
example, when Greece threatened to default on its debt, it supply and demand, just like
threatened the existence of the euro, and investors around the
world rushed to sell euros.
anything else.

4|Page
With a sudden dramatic rise in the number of euros for sale and a definite lack of demand for them, the euro dropped precipitously
against the US dollar and other currencies.

The best thing about forex is that you can buy or sell at any time and in any order. So if you think the Eurozone is going to break apart,
you can sell the euro and buy the dollar. If you think the Federal Reserve is printing too much money, you can sell the dollar and buy the
euro.

The Bulls and the Bears

When looking at the future, many traders will have an opinion on where a currency is going. If a trader is optimistic and thinks a currency
will rise, he is said to be “bullish”. If the trader is negative and expects a currency to fall, he is said to be “bearish”. Every day, the bulls
and the bears do battle and the price moves as one or the other gets the upper hand.

Our job as forex traders is to look at the currencies available to us and to buy the strongest while selling the weakest. So, if after reading
the news you became bearish of euros and bullish of US dollars, you could trade that opinion by selling euros and buying US dollars.

5|Page
Reading a Quote and Making a Trade

Because you are always comparing one currency to another,

forex is quoted in pairs. This may seem confusing at first, but it EUR/USD at 1.4022
is actually pretty straightforward. To the right is an example of
a EUR/USD quote. It shows you how much one euro (EUR) is
worth in US dollars (USD).

If you, instead, wanted to look at the euro in terms of the

Japanese yen (JPY), you would look at the EUR/JPY rate. If you
wanted to see the value of the US dollar in Canadian dollars
(CAD), you would look at the USD/CAD.

The first currency in a currency pair is the “base currency”; the second currency is the “counter currency”. When you buy or sell a
currency pair, you are performing that action on the base currency. So, if you are bearish of euros, you could sell EUR/USD. Now, when
selling EUR/USD, you are not only selling euros, but are buying US dollars. If you are more bullish on the Japanese yen than you are on
the US dollar, you could sell the EUR/JPY instead. It’s all up to you.

Let’s say that you sell EUR/USD at 1.4022. If the EUR/USD falls, that means the euro is getting weaker and the US dollar is getting
stronger. Say the EUR/USD falls to 1.3522. In that case, you would have a profit. If it rose to 1.4522, you would have a loss. So just
remember: if you sell a pair, down is good; if you buy the pair, up is good.

It’s pretty simple.

6|Page
“But I don’t have any euros. How
can I sell them?”

You can buy or sell anything you see active on the trading platform, even if you don’t have any of that currency. When trading forex, you
are speculating on the change in rates. You do this by borrowing the euros. This is standard for most forex traders. This also allows you
access to leverage, which can increase your profits and your losses.

So, let’s look at the example again. When you sell EUR/USD, you borrow 10,000 euros and sell them to someone else in the market,
earning the equivalent in US dollars. Say you did this while the EUR/USD is at 1.4022. In that case, you borrowed 10,000 euros, sold
them for $14,022.00, and held on to those US dollars. Two weeks later, you sold those US dollars when the rate was 1.3522. Since the
EUR/USD price has fallen, you get more euros back at the end than you borrowed. So, you return the 10,000 euros you borrowed, and
the remaining €369.77 is your profit to keep. If the price had risen to 1.4522 instead, that €369.77 would instead be your loss. Your
trading platform will do the math for you and apply the profit or loss directly to your account.

So remember: Buy currencies that are going up. Sell currencies that are going down. Find the best
pair to do that with.

7|Page
Pips, Profit, Leverage, and Loss

Over the years, professional forex traders have come up with some shorthand to make forex trading simple so you can quickly make
decisions about your trading without needing to take out a calculator every time.

What is a “Pip”?

A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This
fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count “pips”. Every point that place in the
quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.

Stock indices have “points”, futures have “ticks”, forex has “pips”. The monetary value of a pip can vary according to the size of your
trade and the currency you are trading. Most accounts typically trade in increments or “lots” of 10,000. A pip in a standard account in
EUR/USD is worth $1.00 per lot. If you were trading 3 lots, you would have 3 pips of profit or loss per pip the EUR/USD moves, and,
therefore, $3.00 of profit or loss.

Some currency pairs will have different pip values.

FOR EXAMPLE: The EUR/JPY pips are valued in Japanese yen. USD/CAD pips are in Canadian dollars, and so on. Once again, your trading
platform makes it all simple by doing the math for you.

8|Page
Maximizing Your Trading

As mentioned before, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage of 50:1
allows you to trade with $10,000 in the market by setting aside only $200 as a security deposit. This means that you can take advantage
of even the smallest movements in currencies by controlling more money in the market than you have in your account.

Leverage is a double-edged sword.

While leverage can be advantageous in increasing your profits, it can also significantly increase your losses when trading, so it should be
used with caution. Start trading in small sizes so that you don’t take on too much risk.

How to Develop a Strategy

So, you now know what forex traders do all day (and all night!). Seems pretty simple, right? Buy rising currencies and sell falling ones.
Nothing complicated there.

9|Page
What’s Next?
You’ve already taken the first step by learning what forex is. Now it’s time to try it. Sign up for an account.

Becoming a Knowledgeable Forex Trader

Once on the demo, you’ll start to get a feel for how it all works. You can start buying the currencies you think will rise and selling the
ones you think will fall.

But how do you know which currencies

will rise and which will fall?

Over the years, forex traders have developed several methods for figuring out how far currencies will go.

Fundamental Analysis: Since currencies trade in a market, you can look at supply and demand. This is called fundamental analysis.
Interest rates, economic growth, employment, inflation, and political risk are all factors that can affect supply and demand for currencies.

Technical Analysis: Price charts tell many stories and most forex traders depend on them in making their trading decisions. Charts can
point out trends and important price points where traders can enter or exit the market, if you know how to read them.

Money Management: An essential part of trading. All traders need to know how to measure their potential risks and rewards and use
this to judge entries, exits, and trade size.

10 | P a g e
There are several important skills needed in order to become a forex trader. And like all skills, learning them takes a bit of time and
practice. We have grouped all these needed skills together into an interactive trading course. You can learn how to analyze and trade
the market from experienced instructors and traders.

And the best part is it’s free. Learn more at https://www.dailyfx.com/forex-education

Disclaimer
DailyFX Market Opinions
Any opinions, news, research, analyses, prices, or other information contained in this report is provided as general market commentary,
and does not constitute investment advice. DailyFX will not accept liability for any loss or damage, including without limitation to, any
loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Accuracy of Information
The content in this report is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to
make independent investment decisions. DailyFX has taken reasonable measures to ensure the accuracy of the information in the report,
however, does not guarantee its accuracy, and will not accept liability for any loss or damage which may arise directly or indirectly from
the content or your inability to access the website, for any delay in or failure of the transmission or the receipt of any instruction or
notifications sent through this website.

Distribution
This report is not intended for distribution, or use by, any person in any country where such distribution or use would be contrary to local
law or regulation. None of the services or investments referred to in this report are available to persons residing in any country where the
provision of such services or investments would be contrary to local law or regulation. It is the responsibility of visitors to this website to
ascertain the terms of and comply with any local law or regulation to which they are subject.

High Risk Investment

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives,
level of experience, and risk appetite. The possibility exists that you could sustain losses in excess of your initial investment. You should
be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any
doubts.

11 | P a g e